Hardly anyone walks into a car showroom entirely unprepared. A new car is usually the second-biggest investment most people will commit to in their life (after a house, that is) and is therefore usually not something taken lightly.
At the same time, only very few potential buyers go far beyond the basics – collecting some general information about the prospective model and comparing prices online. Even less have a clearly formulated car room strategy, which will guide them through the difficult negotiation phase of a deal.
This, it goes without saying, can be a costly mistake.
Without a well-thought out strategy, you not only risk losing a lot of money, but also leaving the show room with the wrong car. In fact, most of the negative dealer experiences you hear about from frustrated buyers are down to this: A lack of clarity about their needs and too little preparation.
Which is why we have put together this guide on how to put together a successful car room strategy. It includes two radical approaches as well as a slightly more conventional (and probably more sensible) third option.
But before we begin, let’s get one thing straight …
The salesman is not your enemy
Recently, we spotted an online article, which laid out a ten-point plan on how to lead negotiations for buying a car. In it, the author had several supposedly successful strategic moves on hand.
These included, among others,
- not to divulge more information about yourself than was absolutely necessary
- to use silence as a weapon and to only speak as much as you absolutely need and
- to keep your trade-in as a secret until the deal has essentially already been struck.
It even went as far as to suggest that you should not show any enthusiasm and keep a perfect pokerface at all times.
While some of these tactics can work, they have two serious flaws. For one, they take the fun out of the entire process of purchasing a car. Although this might not be the most important aspect of the experience, it should definitely play a major role. And secondly, it treats the dealer as an enemy, which you need to fight over every little penny.
In reality, this is neither true, nor does it make a lot of sense. Any deal you strike will ultimately go through the dealer and will constitute a compromise between his goals and yours. The more collaboratively you work with him, the more likely it is that you will get a deal that both sides can agree on – and feel satisfied with.
Salesmen tactics: The old, the timeless and the new
It is important to realise one thing, though: The strategies of salesmen have changed over the years. Some of the things that were standard fare back in the days are now considered problematic. Some, on the other hand, have remained part of the sales vocabulary despite changing customer demands, And finally, some new ideas have turned the entire process upside down.
Today, the scenario of the unprofessional salesman has all but disappeared. Quality controls are tighter and competition is stiffer, which has forced dealers to rethink their approach. Which doesn’t mean that all of the oldschool concepts have disappeared. For example, it is still, apparently, considered promising to give promotional items away, including “branded license plate frames, stickers, carabiners, cups, and similar items”.
What has changed, however, is the notion that the point of a sales transaction is to convince the customer to spend as much as possible regardless of his or her actual needs. Quite on the contrary. If you look at the sales strategies currently en vogue, you will instead find entirely different suggestions: Being transparent, making all important details available online, trying to help you understand your real requirements and creating a veritable ‘experience’.
If you can stick to your budget, this new approach to sales will make the purchasing process a lot more pleasant.
Balance emotion and ‘why to buy’
Some experts maintain that the only thing a car should be able to do is to take from you from A to B. There is a lot to be said for this attitude, especially since it can protect you against buying fancy but ultimately expensive cars with too many add-ons,
On the other hand, just like any other technological product, like a smartphone or a big flatscreen TV, a car also transports a lot of emotion, excitement and a certain fascination. This was recently demonstrated by a study in Australia, which made it clear that 75% of car owners genuinely ‘love to drive’ and almost as many thought of their vehicle as a ‘good friend or buddy’.
What this means is that you can and should not separate the emotion of a car from the more rational reasons to buy it, whenever possible. What is important, however, is that you balance emotion and reason and adapt this balance to your personal financial situation. In doing so, you may just be able to find the model that excites you while safely and reliably taking you from A to B.
Whatever your preferences, however, you will need to be able to pay for this pleasure. And it is here that we have to raise an important question:
To finance or not to finance?
One of the web’s finest money-saving sites, Mr. Moneymustache, has a very simple creed: NEVER, EVER borrow money to buy a car.
Can this possibly be right?
The reasoning behind this approach is that no single item is important enough to warrant spending more on it than you have. If the price of a car exceeds what you have tucked away on your savings account (or underneath your pillow, if you’re more old fashioned), then you either …
a) … simply do not have enough money to afford a car right now or
b) you are looking at the wrong car.
As Mr Money Mustache puts it:
“Even as someone with a wife, a small child, no debts and enough money to not work, I STILL consider my 2005 Scion Xa which is worth less than $7000 right now to be on the newer and fancier side of what we need.”
As alluring as this proposition may sound, it is also a bit too strict. There are plenty of situations, where you really do need a car, but you don’t have the financial capacities to pay for it in full right now. What’s more, buying a car on finance may lead to a better price if the dealer sets up the financing and can thus even be cheaper than paying in cash. And finally, financing spreads out the costs over a longer period of time and therefore in fact is less risky than a cash payment, where you let go off a sizable chunk of money all at once.
Paying in cash is not necessarily a bad option, therefore. But it is by no means your best choice by default.
Where to finance?
Another vital part of your showroom strategy is the question of whether you should secure financing for your car prior to setting foot in a showroom.
Although many experts will claim that is always better to secure financing yourself, this isn’t necessarily always true. In fact, dealers are often able to get a far better loan in your name than you could by approaching a bank directly.
What does make sense is to get in touch with a bank about your car finance to at least get a quote or a rough estimate of how much you will need to pay. This will help you to keep all your options open and to find the best deal.
Now we’ve established some of the basics of what kind of car to look for and how to finance it, let’s turn towards one of the cornerstones of your showroom strategy: Your negotiation tactic. Although more and more deals these days are clenched online, the showroom is still by far the most important place for buying a car and will likely remain so for some time – if only for the fact that you will want to see and test drive a vehicle before taking the plunge.
Website Negotiation Dynamics has compiled a list of some of the most important strategic moves to apply when talking to a car salesman. Although not all of them are equally promising – some of them are still heavily influenced by the concept of the bad salesmen mentioned above – a few are definitely worth mentioning:
- Have a Laser Focus / Bottom Line: Focus on the lowest price you can possibly get and stick to a clearly defined ‘bottom line’ – the price you definitely do not want to exceed.
- Set Your Mind to Be Calm and Patient: Negotiations can take time and the more you remind yourself of this, the less likely you’re going to make irrational decisions.
- Stay in Control: This does not mean that you should try to dominate the conversation. Rather, it means that you ultimately have the right to only accept an offer if you really feel it is in your best interest. You always retain your right to walk away.
None of this is rocket science – and yet by actually sticking to these points, you can enter negotiations both more confidently and with a much higher chance of succeeding.
Things get a lot more interesting if we now start to examine some of the most commonly mentioned negotiation advice. Two supposed rules are particularly critical here:
- The idea that you should never mention a trade-in before clenching the deal on the new car first.
- And secondly, the suggestion to start with ridiculous demands and then slowly work your way backwards (both were recently proposed by Moneycrashers). As sensible as these may sound, they must both ultimately be regarded as urban myths.
In terms of the trade-in, the suggestion to withhold that information until the very end is based on the assumption that the dealer will always try to keep the cost of the trade-in low and instead offer you small incentives on the purchase price of the new car. You can’t argue with this logic, because dealers indeed make their highest margins with second hand car sales.
Proponents of the ‘don’t tell about the trade-in’ doctrine now argue that you are getting closer to the real value of the car if you merely show up as a buyer at first. This should therefore get you a better deal.
In reality, however, dealers base their decisions pretty much on the actual value of a vehicle. If you inform yourself well enough before stepping into a car showroom, you will be able to approximate this value regardless of any smart tactics. Only telling the salesperson about the trade-in afterwards will only make the negotiations longer and less agreeable.
The same goes for the ‘confident’ strategy of making a ridiculously low first offer for your financing. Here, too, there is only so low that a loan can go and by making an unprofessional offer, you are merely displaying your lack of knowledge.
Do yourself a favour, therefore, and get your facts straight – things will go a lot smoother that way.
Radical Car Room Strategy #1: Non-Negotiation
With all of this in mind, let’s take a closer look at two potentially interesting strategies to get the most out of your negotiations. The first of these was proposed by business magazine Forbes and can most simply be described as the strategy of non-negotiation. This is how Forbes describe the approach in their own words:
“Tell the salesperson and sales manager that you’ll sign the paperwork the minute they hit your target figure. Politely decline any counter-offers, give them your phone number, and leave. If the price you’ve proposed is within the realm of possibility, they’ll call you at some point.”
The idea has a lot going for it. It assures that you stick to your baseline in terms of how much you will spend. It also reduces the lengthy haggling process to a short visit and a phone call.
On the other hand, there is a good reason why negotiations still take place. In conversation, you can still arrive at very sensible compromises and work out some of the finer details of a deal. The danger of a harsh approach like the one described is that many dealers will be put off by the uncooperative attitude – and will not give you a call although a deal could have been struck.
Radical Car Room Strategy #2: Game Theory
Another intriguing strategy comes from the realm of game theory. Here, the underlying concept is that every dealer is capable of adjusting their offer according to what the other players on the market are doing. By applying the approach we’ll describe below, you are effectively robbing them of this possibility and stand a far better chance of keeping the price low.
This approach, first proposed by economics expert Bueno de Mesquita and described by edmunds.com in an article, works as follows:
“He advises that a shopper call competing dealerships, tell each dealer that she will be purchasing a car at 5 p.m. that day and demand the dealer’s best price. He recommends that the buyer then show up at the dealership that has the lowest price, carrying a check for the exact amount, and then drive away in the new car.”
It is an intriguing idea, which may actually work in some situations. However, it, too has some obvious drawbacks:
All models are optioned differently, so a one size fits all approach is unlikely to work unless you can decide on the exact model and year it was built beforehand.
You will need to offer this idea to the person in charge at the dealership, the one capable of actually promising the deal will go through.
In practise, the proposal may simply sound too bizarre and will therefore very likely be turned down by most dealers.
In the end, you are probably better served by pursuing a less fascinating, but more secure car showroom strategy:
- Inform yourself before setting foot into a showroom.
- Work with the salesman in a cooperative and friendly mood.
- Be aware of sales tactics, but prepare beforehand and remain calm and patient.
- Set yourself a baseline and do not deviate from it.
- Get rough estimates for a financing before talking to the dealer, but don’t be afraid to set up financing through the dealer either.
- Don’t try any ‘aggresive’ strategies yourself. If you have a trade-in, mention this right at the start, but be aware of what you can ask for it.
- Don’t take any unnecessary extras and select the car according to a mixture of emotion and logic.
By keeping these things in mind, you should be able to avoid costly mistakes and to get a great deal.